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Gold testing key support as investors weigh conflicting macro factors

Fawad Razaqzada Fawad Razaqzada 26/11/2020
Gold testing key support as investors weigh conflicting macro factors Gold testing key support as investors weigh conflicting macro factors
Gold testing key support as investors weigh conflicting macro factors Fawad Razaqzada
Gold has been under some pressure over the past few months and the selling gathered pace this week. The shiny metal fell out of favour because of reduced demand for haven assets as investors looked forward to more normal times ahead in 2021 with the developments of the vaccines. Consequently, they bought more risky assets such as Bitcoin, growth stocks and commodity dollars.

But is this the end of the bullish trend for gold, or is this a “healthy” pullback ahead of more gains in the future?
 
While gold may be down, the precious metal is by no means out. The long-term outlook on gold remains favourable. With a recovering global economy, jewellery demand should pick up to offset some of the weakness arising from the investment side. Inflation is expected to pick up sharply if the global recovery accelerates. This should be good news for gold, traditionally a good inflation hedge. But if the world economy does not recover so strongly, then interest rates will likely remain very low for a very long time still, thus providing tailwind support for gold and other non-interest-bearing assets. So, whichever way you look at it, the downside looks limited for gold.

In the short-term, the dollar could also help to put a floor under prices as the greenback continues to fall out of favour. Wednesday’s unemployment claims data has fuelled concerns that a renewed economic downturn has already begun because of the latest lockdowns. Many businesses have closed down during the pandemic for good and many jobs will never return. Against this backdrop and the potential for taxes to rise under the Biden administration, and even with the help of vaccines, there will be question marks over the speed of the recovery and pent-up demand in 2021. Consequently, we may not see as sharp a recovery as has been priced in by financial markets over the past several months. This should mean lower Fed interest rates for longer, keeping the pressure on the greenback and providing support for gold and silver.
 
Meanwhile from a technical point of view, gold is now hovering around the key short-term support level of around $1800, previously a significant resistance level. This is also where we have the longer-term 200-day moving average come into play. With the dollar remaining on the backfoot, watch out for a potential bounce there:

GoldSource: ThinkMarkets and TradingView.com

Still, even if gold were to find support here, this does not automatically mean the low is in. For that to happen, gold will still need to form a higher high above $1880, its most recent high prior to the latest breakdown before the bulls can be encouraged to step in.
 
Indeed, if support at $1800 breaks, the precious metal could stage a deeper correction. In this scenario, I wouldn’t rule out a drop to the 38.2% Fibonacci retracement (against its rally from the August 2019 low to the recent record high) at $1725.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Meet our contributors
Mohammed Zidan
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Mohamed Zidan
Chief Market Strategist, Dubai

Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

Mohamed Zidan has been invited as a guest speaker for several international seminars. Zidan provides daily and weekly outlook for the markets. His experience ranges from currencies, commodities, stocks and options. he applies a top-down, global macro approach combined with price action to generate trade ideas and anticipate the next move.

Victor Golovtchenko
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Victor Golovtchenko
Global Macro Analyst, Sofia

Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

As an affectionate macro-focused analyst, he has an integrated framework to look at financial markets as a whole, identifying gaps between currencies, stocks, bonds, and other asset classes to get a core complete picture of the macroeconomic environment.

Fawad Razaqzada
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Fawad Razaqzada
Market Analyst, London

Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

Carl Capolingua
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Carl Capolingua
Market Analyst, Melbourne

Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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